Tesla Inc. Dealing with Risk and Uncertainty

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Tesla is most suitable for discussing such an important thing from an economic point of view as dealing with risk and uncertainty, especially given the recent crisis episodes in the global economy. Tesla Inc. is a large automotive and energy company, established relatively recently in 2003 and located in Palo Alto, California (Tesla, 2021). The main direction of the company’s specialization is the production of electric vehicles. In many ways, it can be considered, if not a pioneer in this niche, then one of the most prominent representatives for sure. Tesla is seen as a pioneer in the industry. It was one of the first to introduce advanced renewable power technology in vehicles, combining its approach with the automation and digitalization of vehicle assembly. The firm also innovated in its very choice of business model. Unlike other auto companies that distribute their products through dealerships, it has started selling cars directly to consumers, making Tesla the most productive player in its market. In the essay, risk management and issues related to risks are discussed in the context of Tesla’s recent actions.

The most serious problem that Tesla has faced in recent years is the macroeconomic changes in the market, geopolitics, and the global economy. In particular, the COVID-19 pandemic has become the company’s most important factor and problem. Having begun to actively and destructively influence the global economy at the beginning of the first quarter of 2020, the damage from the pandemic began to grow exponentially. More and more industries were affected, and the impact on the world of the pandemic was growing every month and quarter. The situation was influenced by government regulations and measures of protection from the pandemic to minimize the damage to the economy and society. Coupled with changing social behavior, protective measures have led to the restriction or complete closure of the first and secondary logistics lines. Government functions, business activities, and personal communication within the company were also affected, as well as production and general activities. In some cases, the weakening of such trends has accompanied an actual or perceived return to severe social interaction and commerce (Tesla Inc., 2021). Thus, the pandemic has become one of the main crisis risk factors for Tesla.

As a means of countering the growing impact of the crisis, Tesla temporarily suspended all related operations at all of its manufacturing plants over the past year. The suspension has affected operations worldwide, and some of the company’s main suppliers have temporarily or permanently ceased operations (Tesla Inc., 2021). The company introduced layoffs and pay cuts with a negative reputational and political effect. At the same time, Tesla’s US operations have been scaled back to minimize damage to their operations and reduce social interactions within the staff (Tesla Inc., 2021). Temporary obstacles to the administration and maintenance of the company also impeded the delivery and deployment of Tesla’s products to the market. Thus, the company’s attempt to minimize economic damage led to colossal losses in production and supply. The company’s activities affected its administrative resources and led to reputational damage for Tesla. Looking at the company’s current state, it can be judged that a tough and sharp attempt to counter the crisis led to long-term problems during the crisis, which will have consequences for Tesla in the future.

The situation in the company might be improved through the use of risk management. As such, a general methodology for improving the processes done by risk management departments provided by Hillson and Simon (2020) is sufficient for such an improvement. The first part of advice for the company would be enhancing the operation of risk identification. Namely, the team and its managers should organize regular brief meetings to discuss possible challenges. The risk department should orderly recognize the problems and describe them, mentioning all the threats and possibilities that might arise from the situation. Next, the specialists must assess the emergency and scale of impact the problem might cause; the list of risk priorities is compiled by combining these parameters (Hillson & Simon, 2020). Finally, the collateral phenomena signalizing the existence of risk are to be determined.

Furthermore, a stage of planning and reporting the problem is recommended for risk management. Namely, the company should identify the actions that can reduce risks by interviewing persons that cause or are relevant to the problem, compiling appropriate strategies, and appointing people responsible for the actions. Moreover, these actions should be budgeted; and specialists should suppose a set of expected changes and signs of success (Hillson & Simon, 2020). However, the plan should not be accessible to the managers only. They must report the information with detailed analysis, easy-to-understand preview, and evidence-based report to the stakeholders (Hillson & Simon, 2020). Thus, the important information about risks would be comprehended by persons that can influence its minimization.

Finally, the implementation is the most significant part of the process, and advice can improve it. Before all, responsible managers should monitor all the actions, budgets, persons, and changes. If new risks arise or some unexpected issues occur, the plan should be modified accordingly. Moreover, all updates must be reported to relevant offices and stakeholders (Hillson & Simon, 2020). Consequently, the process should be assessed for its impact and effectiveness to prevent further risks.

As mentioned earlier, one of the methods of countering the crisis within the company, Tesla chose staff reduction. However, it should also be noted that the reduction was carried out very sharply and not always legally and based on the economic necessity of the company. There are enough examples of such events, such as cases with the Tesla production management representatives who left the company after the first quarter. Employees of the company often cite the imbalance between personal life, especially relationships with family, and work hours as the reason for leaving. In particular, the matter is about strong reworking in the course of work, both among the production and logistics employees and the company’s management personnel (Scheiber, 2021). The company also committed acts that resulted in severe reputational damage, such as firing Richard Ortiz, a Tesla employee who was a union member.

The unions of the company’s employees have been experiencing strong discontent since 2018, but the crisis created by the COVID-19 pandemic has only exacerbated the situation. The company’s CEO, Elon Musk, is himself mentioned in the company’s report as a source of risk factors (Scheiber, 2021), and the reason for this is, among other things, offensive statements about the laid-off employees. As a result, the 2019 National Labor Relations Board ruling that Tesla illegally fired a worker involved in a union organization remains in effect today. Also, the company’s executive director, Elon Musk, illegally threatened workers with the loss of stock options if they were associated with trade unions (Scheiber, 2021). To prevent similar incidents in the future, the company needs to communicate more humanely and openly with employees and approach their dismissal without the personal motives of management. One should also consider the company’s CEO, Elon Musk, as a separate risk factor, often only exacerbating the consequences of downsizing due to the pandemic crisis with his statements and behavior.

It is also important to how Tesla deals with the moral hazard problem. In particular, one can cite the case that occurred with California resident Benjamin Maldonado and his teenage son when they were driving back from a soccer tournament. While the family was driving home on the California freeway in August 2019, a truck in front of them slowed. When Mister Maldonado turned on the turn signal, his Ford Explorer pickup was hit by a Tesla Model 3, traveling on autopilot. According to a police report, Giovani, who was sitting in the front passenger seat, was thrown from a Ford vehicle and passed away (Boudette, 2021). The company took a position of blaming the victims of road accidents, which negatively affected its reputation and led to a decrease in the company’s profits and discontent on the part of Tesla stakeholders. However, Tesla could have tried to help the victims and their families, thereby demonstrating loyalty to its customers, which positively influenced attitudes towards the company and its business activities in the future. Such a policy often positively impacts the solution of crises related to the public.

Based on some of the above factors, we can judge that Tesla’s principal-agent problem is the CEO of Elon Musk. Musk has regularly discredited the company’s activities with disrespectful, offensive, and sometimes publicly inappropriate statements and actions. This kind of behavior of the person representing the company directly impacts Tesla’s tolerance of the crisis. Earlier, there were cases when Musk’s activities led to a negative reaction from stakeholders, customers, the press, and direct from company employees (Scheiber, 2021). Thus, the company often faces crisis factors emanating directly from its CEO.

To prevent this, the company’s board of directors, both previously and recently, has tried to limit Musk’s influence on public opinion about the company. Still, Tesla has to approach this process quite carefully. The reason for this is the fact that the popularity of the company’s brand was ensured precisely by the public activities of Elon Musk, from which one can judge that the company owes him both its commercial and public success and its problems. Thus, the company’s management approach is the most optimal solution to the problem, taking into account the specifics of the activities of the company’s principal agent represented by Elon Musk.

The structure of Tesla is also important, directly influencing its activities and representing a unique combination of divisional approach and flexibility. As stated in a study on company structure, Tesla does not have a traditional governance structure. The company does not have any organizational chart or a public list of top executives, which distinguishes it from other companies in their niche and commensurate competitors (Dudovskiy, 2021). One of the important distinguishing features of the company is problems with the delegation of powers from the side of its CEO Elon Musk.

Relying on personal traits such as a declared willingness to give up personal time and productivity, Musk seeks to control micro-management directly. This negatively affects the company’s state since the organizational structure, although devoid of excessive bureaucracy, still depends on the state and personality of the only leader. To improve the situation and improve the organization of the structure of Tesla, clearer management and top management structure is needed, with the delegation of CEO powers to a separate group of managers. The company should also implement a clearer management structure while trying not to lose its main advantage, which is the flexibility of management and the absence of bureaucracy, which often inhibits the activities of employees.

Summarizing the above data about the company, you can see that Tesla’s methods of dealing with crises and recent problems that have arisen are counterproductive. Moreover, most of Tesla’s decisions negatively affect the company, both commercially and reputationally. It is safe to say that the personality of its CEO Elon Musk also harms the company’s activities to a greater extent, compensated only by his influence on the public. Musk’s influence and behavior are gaining acceptance from audiences not directly related to the company or its products, which is questionable for stakeholders. His statements to Tesla employees and victims of company product accidents only exacerbate the situation. But the most counterproductive for the company is Musk’s attempt at ubiquitous micro-management and its reluctance to delegate authority. This negatively affects the structure of a company the size of Tesla and will have repercussions in the future.

References

Boudette, N. E. (2021). Tesla says autopilot makes its cars Safer. Crash victims say it Kills. The New York Times.

Dudovskiy, J. (2021). Tesla organizational structure: Divisional and flexible. Business Research Methodology.

Hillson, D., & Simon, P. (2020). Practical project risk management, third edition: The ATOM methodology (3rd ed.). Berrett-Koehler Publishers.

Scheiber, N. (2021). Tesla employee’s firing and Elon Musk’s tweet on union were illegal, labor board rules. The New York Times.

Tesla. (2021). About Tesla.

Tesla Inc. (2021). Quarterly report pursuant to section 13 or 15(d) of the securities exchange act of 1934.

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Tesla Inc. Dealing with Risk and Uncertainty

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